Every society or government follows a specific type of economic system. By the means of this system, they organize as well as distribute their available goods, services, and resources across a country or geographic region. Such systems regulate factors like capital, labor, land, production, physical resources, etc. In this world, there are four prominent economic systems and the traditional economic system is one of them. In this article, you will learn the traditional economic theory, examples of traditional economy advantages and disadvantages, etc. In short, this article has all the information you need to know about a traditional economy.
1. What is Traditional Economic Theory?
A traditional economy is an economic system that depends on history, customs, and time-honored beliefs. Here societal needs and traditions determine fundamental economic decisions, such as the production and distribution of goods as well as services. In such economies, rather than using money, the people typically barter or trade.
These economies depend on fishing, hunting, agriculture, or a combination of these activities. According to anthropologists and economists, almost every economy today started as a traditional economy. The traditional economic theory believes that humans make rational choices in the hope of maximizing their economic well-being. (See What are Characteristics of Good Money?)
2. What is Traditional Economy Example?
Traditional economies make fundamental decisions like the production and distribution of goods and services based on societal needs and tradition. They are not ruled by monetary profit. Such economies typically don’t use money, they indulge in barter or trade. This economic system is heavily reliant on livelihoods like fishing, hunting, agriculture, or a mix of these livelihoods. Anthropologists and economists claim today, that all economies started as traditional economies.
In modern times identifying examples of traditional economies can be difficult as, based on economic systems, many countries have classified themselves as socialists, communists, or capitalist. However, inside these countries, there are still isolated pockets that function as traditional economies. For example, in Brazil, the main economy is a combination of communist and capitalist. However, the indigenous people of its Amazon River rainforest have traditional economies. They mainly do farming and hunting, produce goods from these activities, and then barter these goods with their neighbors.
The indigenous people like the Inuit, who reside in the Arctic regions of Greenland, Canada, and Alaska also practice a traditional economy. They do hunting, gathering, fishing, and native crafts. Mostly whatever they produce is used to fulfill the demand of the family and also to barter with their neighbors. Only occasionally, they sell handmade goods to outsiders. However, to get a complete idea about it, check out the traditional economy advantages and disadvantages, mentioned in the latter part of the article.
3. What is a Characteristic of a Traditional Economy?
A traditional economy is an economic system based on the way a society lives. In such a system, the belief and livelihood of the people determine fundamental things of the economy like the production and distribution of goods and services. The characteristic of a traditional economy is as follows:
- It often uses barter or trade in place of money.
- In such economies, the main livelihood practices are fishing, hunting, agriculture, and gathering.
- In such economies, most of the goods and services are fully used.
- In places with traditional economies, people mostly live in tribes or families.
- Many traditional economies exist in hunter-gatherer or nomadic societies. These societies migrate seasonally and depend on their herd of animals for survival.
- When people settle in one location and start a society, they progress from hunters to farmers.
4. What is the Purpose of Traditional Economy?
The main purpose of the traditional economy is to be self-sufficient. Its community needs to engage in different activities to produce services or goods that are required by the rest of the community. The community shouldn’t rely on trade with other communities to fulfill its needs. For example, in the Andaman Islands, the Jarawa tribe survives through primitive methods. The Oribu tribe of Brazil is also a farming community that grows vegetables and fruits. (See What is Cultural Convergence?)
5. Is Traditional Economy Successful?
After understanding the purpose of traditional economy, let’s learn if the traditional economy is successful or not. A traditional economy is dependent on traditions and customs for determining its trade and commerce. It is far less efficient and successful compared to market economies like capitalism. It doesn’t provide a good and consistent quality of life to its people.
In such economies, work roles are passed on from one generation to another and that is why there are very few career options. Here a hunter’s son becomes a hunter. These economies don’t see innovation and change. In the next pointer, let’s go through the traditional economy advantages and disadvantages.
6. What are Traditional Economy Advantages and Disadvantages?
A traditional economy is a system where commerce and trade are based on things like customs and traditions. Traditional economy advantages and disadvantages are as follows:
- No wastage of goods- In such an economic system, the products are not surplus. The things produced only meet the requirements of the community, family, or tribe.
- Keeps customs and traditions alive- Communities, families, and tribes in traditional countries preserve arts and skills.
- Have the scope for evolution- The traditional economic structure has the potential to pick up the traits of different economic structures. Every modern economic structure has evolved from the traditional economy.
- Environment friendly- It mostly relies on conventional methods to conduct economic activities. Due to its limited use of technology, it creates less harm to the nature and environment.
- Talented and skilled people- This economy has a system of making a living out of skills acquired through community and family. Over time, the communities in this type of economy have become highly skilled in particular things.
- Role clarity and satisfaction- In such economies, the individuals who are required to run family trades are successors. They inherit the skills and responsibilities of a successor. Moreover, they are introduced to these things early on in their lives. They are very satisfied with their work and the earnings from it.
- Safe for global problems– Traditional economies are often disconnected from the outside world and are self-sustained. This way the communities here can avoid various globally spread infectious diseases.
- Risk of exploitation- It is often seen that developed economies invade underdeveloped economies and exploit their natural and land resources.
- Starvation- In traditional economies, if there is a lack of agricultural, fishing, or hunting produce, there can be a food shortage. It will starve all the members of the community.
- Limited growth opportunities- Such economies focus more on customs and traditions. They are hardly concerned about the development of new production and distribution methods. The economic progress in such economies is very stagnant.
- Extinction of natural resources- These economies are highly dependent on natural reserves for their shelter, food, and clothing. This produces the risk of natural resources getting scarce.
- Poor medical amenities- The communities following traditional economies have limited exposure to the outside world. They lack modern medical facilities. In such communities, average life expectancy is very low, and the infant mortality rate is high.
- Technologically backward- These economies are heavily reliant on old-school production techniques. They don’t have new technology that is cost-efficient and can increase production rapidly.
- No global interaction- Since traditional economies are disconnected from the global world, they miss out on the development of new techniques, trade relations, and the exchange of cultures.
7. Which is More Important in a Traditional Economy?
Since you know the traditional economy advantages and disadvantages, it’s time to learn about the most important thing in a traditional economy. In a traditional economy, beliefs, and customs determine economic decisions. The work roles are passed on from one generation to other. This economy gives more importance to honoring tradition than gathering individual wealth. After this, let’s explore why traditional economies limit population growth.
8. Why do Traditional Economies Limit Population Growth?
As you have read the traditional economy advantages and disadvantages, you might know that traditional economies limit population growth as they are more vulnerable to changes in nature, like the weather. The people in such communities can starve in case of poor hunting or harvest. Moreover, they are also vulnerable to command or market economies that can take away their natural resources. (See How much money is in the world?)
9. What are the Advantages and Disadvantages of Command Economy?
In a command economy, the means of production are controlled by the centralized government. It has its fair share of advantages and disadvantages in comparison to free-market economies. Let’s understand these advantages and disadvantages through the following pointers.
- It boosts industrial power.
- It doesn’t allow monopolizing.
- It allows the production rates and availability of the goods to be adjusted as per the exact demand of the population.
- It creates harmony between society and government.
- It mobilizes the resources better.
- It can give easy responses to internal emergencies and disasters.
- Its priority is social welfare.
- In such an economy, societal needs may be ignored.
- It restricts the freedom of the people as it puts full control in the hands of the government alone.
- It might hinder innovative developments.
- It doesn’t offer competition.
- It can result in the explosion of the black market.
- It can lead to the emergence of some sort of export problems.
- It can lead to an unbalanced amount of goods production.
- It is difficult and sometimes impossible to coordinate such an economy.
- The incentives can be misplaced by the authorities.
10. What are 5 Disadvantages of a Mixed Economy?
An economic system that combines elements of both socialism and capitalism is called a mixed economy. Most nationals around the world follow some sort of mixed economy. Such an economy mixes capitalist elements like free trade, privatization, and private property, with socialist elements like redirection and the welfare state.
Besides wondering about the traditional economy advantages and disadvantages, note these 5 disadvantages of a mixed economy:
- It leads to the exploitation of labor.
- At the expense of the welfare of the citizens, it puts more emphasis on profit.
- Such an economy has a level of mismanagement and corruption.
- Since there is a gap between the rich and the poor, there is an unequal distribution of wealth.
- Because of the involvement of the state in this type of economy, there is hardly any efficiency.
Hence from the list of traditional economy advantages and disadvantages, we can say that traditional economies puts individual desires aside and focuses more on the good of the group, and by doing that they left behind the development of new techniques, trade, and the benefits of exchanging the cultures. (Also read Why are Beliefs and Tradition Important?)